A couple of years ago, several states like California and Vermont changed the way that credit checks could be used as a part of a background check. These states enacted laws that banned the use of credit reports, except in particular circumstances based on the type of position being hired for.  Recently, New York City has implemented a similar type of ban.

The City Council approved a plan that would no longer permit the use of a job applicant’s credit history as a part of the employment screening process.  It has been viewed as a type of discrimination, as credit histories can be a make or break part of the hiring decision when it really has no bearing on the job.

The idea behind these types of laws is to not allow a credit history to play into the hiring factor. There are jobs that will be exempt from this law, but it is designed to protect the average worker looking for employment. Far too many employees have been refused employment due to a bad credit history. The exceptions to the law are:

  • Employers required by state or federal law or regulations, or by a self-regulatory organization as defined in Section 3(a)(26) of the Securities Exchange Act to use an individual’s consumer credit history for employment purposes;
  • Police officers, peace officers, or those in a position with law enforcement or investigative function at the department of investigation (or in certain positions subject to background investigation by the department of investigation);
  • Positions requiring the employee to be bonded by City, state or federal law;
  • Positions requiring the employee to possess a security clearance under federal or state law;
  • Non-clerical positions having regular access to trade secrets, intelligence information or national security information;
  • Positions having signatory authority over third party funds or assets valued at $10,000 or more, or positions that involve a fiduciary responsibility to the employer with authority to enter financial agreements on behalf of the employer for $10,000 or more;
  • Positions that allow the employee to modify digital security systems protecting the employer or client’s networks or databases.

The one thing that must be remembered with regards to employment credit checks is that there is no score listed on the report.  Employment credit checks are considered a “soft pull,” does not affect credit, and does not reveal a score. Scores are only utilized in credit reports where there are monetary factors being considered, such as a loan or tenant screening. So it is not the score that is the factor in the decision when these are used in employment decisions, it is the credit history. It is understandable, however, that even though a score is not utilized, the credit history does not in and of itself impact a person’s ability to perform a job.

Regardless of the information obtained, a background check should be used to identify a person’s worthiness and ability to perform the job at hand. Cities and states are working to even the playing field when it comes to providing job opportunities and many are enacting these laws around credit checks to remove what is considered an unfair hiring practice by refusing employment based on the credit checks.

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